Ita/213/2009 Of The Commissioner Of Income Tax v. M/S. Blue Water Foods & Exports

IN THE HIGH COURT OF KARNATAKA, BANGALORE Dated this the 8[th]day ofDecember, 2014 PRESENT:| THE HON'BLE Mr. JUSTICE N.KUMAR AND THE HON'BLE Mr. JUSTICE B. MANOHAR Income Tax Appeal No.213/ 2009 BETWEHE 1.THR COMMISSIONER OF [INCOMB TAXC R BUILDING, ATTAVAR|MANGALORE |THERE ASST. COMMISSIONER OF INCOME TACIRCLE - 2(1), MANGALORE ... APPELLANTS | (By Sri FESANMATHI INDRAKUMAR, ADV..,) ANI M/s. BLUE WATER FOODS & EXPORTSPVT. LTD., INDUSTRIAL AREA|BAIKAMPADY, MANGALORE .. RESPONDENT (By Sri S PARTHASARATHI, ADV..,) THIS ITA FILED U/S.260-A OF I.T.ACT, 1961 ARISING OUTOF|ORDERDATHD1-12-2008PASSED.IN|ITA.NO.887/BANG/2008 FOR THE ASSESSMENT YEAR 2003-04, PRAYING TO (i) FORMULATE THE SUBSTANTIAL QUESTIONS OF 2 LAW STATED THEREIN AND (11) ALLOW THE APPEAL AND SET.ASIDE THR ORDBR PASSBD BY THR ITAT BANGALORE IN|ITA.NO.887/BANG/2008 DATED 1-12-2008. THIS ITA COMING ON FOR FINAL HEARING, THIS DAY,N.KUMAR, J.,DELIVBRBED THR FOLLOWING: JU DBiGMENT The Revenue has preferred the appeal against the order|passed by the Tribunal, which has held Section 40A(3) of theIncome Tax Act, 1961 (for short hereinafter referred to as ‘theAct’) is not attracted to the facts of the case. © 2.The assessee is a 100% Export Oriented Unitengaged in the Exports of Fish. The assessing authorityduring the course of assessment proceedings found that asum of Rs.1,40,14,283/- cash payment had been made andthe assessee has failed to produce the identity of purchasesand the genuineness of purchases were not established. Inother words, he held purchases to the aforesaid extent are notgenuine and disallowed the same as these payments havebeen made by cash. In appeal preferred by the assessee, the first appellate authority deleted the addition made by theassessing officer, but enhances the addition by disallowing20% of the entire expenditure. In effect, disallowance wasRs.2,091,00,909/- as against Rs.1,40,14,283/- made by theassessing officer by invoking Section 40A(3) of the Act. — 3.The assessee preferred an appeal before theTribunal against the said order. The Tribunal held once the)majority of the fish was purchased through banking channel,there was no reason to invoke the provision of Section 40A(3)of the Act for the entire purchases solely on the issue that thepayments were not made to the producer of fish and thereforeallowed the appeal and set aside the order of the assessing)authority. Aggrieved by the said order, the Revenue is in)appeal. On 9.9.2010, the appeal came to be admitted toconsider the following substantial question of law:- “Whether the Tribunal was justified in setting|aside the order of the Appellate Tribunal which had|disallowed 20% of the total purchases offish on the| 4 ground that the entire purchases are made by cash)contrary to sub-section (3) of Section 40A, when thepayment of entire consideration by cash was not in)dispute?” 4We have heard the learned Counsel for the parties. 5section 40A(3) reads as under:-“WheretheasSCSSCCINCULrsexpenditure in respect of which payment ismade, after such date (not being later thanthe 3I[St]~ day of March, 1969) as may beSpecified in this behalf by the CentralGovernment by notification in the OfficialGazette,in(OSUMexceeding(/twenty]thousand) rupees’ otherwisethan by'acrossed cheque drawn on a bank or by acrossed bank draft, [twenty per cent of suchexpenditure shall not be allowed as adeduction/:” 6.Rule 6DD(f) of the Income Tax Rules, 1962 (for short hereinafter referred to as ‘tthe Rules’) reads as under:- 5 “(f)where the payment is made for the purchase of- (y)agricultural orforest produce; or (it)the.produceofanimalhusbandry|(including hides and skins) or dairy orpoultry farming; or(including hides and skins) or dairy orpoultry farming; or (itt)fish orfish products; or| (iv)theproductsofhorticultureOT|apiculture,apiculture, to the cultivator, grower or producer of sucharticles, produce or products;”articles, produce or products;” TSThe circular issued dated 99.12.2008 explaining 6.Rule 6DD(f) of the Income Tax Rules, 1962 (for short hereinafter referred to as ‘tthe Rules’) reads as under:- 5 “(f)where the payment is made for the purchase of- (y)agricultural orforest produce; or (it)the.produceofanimalhusbandry|(including hides and skins) or dairy orpoultry farming; or(including hides and skins) or dairy orpoultry farming; or (itt)fish orfish products; or| (iv)theproductsofhorticultureOT|apiculture,apiculture, to the cultivator, grower or producer of sucharticles, produce or products;”articles, produce or products;” TSThe circular issued dated 99.12.2008 explaining the meaning of the expression ‘fish or fish products’ used insub-clause (iii) of clause (e) of rule 6DD of the Rules reads as)under:- “(u) The expression ‘fish or fish products’ used in rule 6DD(e)(ui) would include ‘other marine.products such as shrimp, prawn, cuttlefish, squid,|crab, lobster etc.’.” 8The argument of learned Counsel for the Revenue is the assessee has not produced any material to show that they have purchased this fish from the producer. Therefore,the assessee is not entitled to the benefit of Rule 6DD oft theRules. QThe material on record discloses that the assesseeprocures fish from sea shore bordering Goa to Kochi and hasbeen able to make export turn over of more than Rs.10crores. The ‘producers’ of ‘lish or fish products’ for thepurpose of rule O6DD/(e) of the Rules would include, besidethe fishermen, any headman of fishermen, who sorts the)catch of fish brought by fishermen from the sea, at the seashore itself and then sells the fish or fish products to traders,exporters etc. 10.It is only when fish is purchased from a trader;broker or any other middleman, the benefit of the aforesaidprovision is not available. The assessee is a trader/exporterof fish. The assessee has purchased the fish from thefishermen or the headman of the fisher and once the. purchase is made of fish from the aforesaid persons, nodisallowance under sub-section (5) shall be made, even if any|portion in a sum exceeding twenty thousand rupees is madeto a person in a day, otherwise than by a crossed cheque|drawn ona bank or an crossed bank draft in the cases of.bank draft. Therefore, the order passed by the Tribunalholding that Section 40A(3) is not attracted to the facts of thiscase, 1S proper and cannot be found fault with. Thus, thesubstantial question of law is answered in favour of theassessee and against the revenue. ll.We do not find any merit in the appeal.Accordingly, appeal isdismissed. Sd/-. JUDGE Sd/-. JUDGE.